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INVESTMENTS AND FAIR VALUE DISCLOSURES

9 Months Ended

Sep. 30, 2023

The following table presents the components of the Company’s investments as reported in the consolidated balance sheets:


	September 30, 2023		December 31, 2022

	(dollars in thousands)
U.S. government obligations, at fair value	$	79,408	$	24,782
CLOs, at fair value	217,543		207,147
Equity method investments	87,033		67,130
Total Investments	$	383,984	$	299,059

Investments of Consolidated Entities	$	322,516	$	544,554

The Company invests in U.S. government obligations to manage excess liquidity. CLOs, at fair value, consist of investments in notes of unconsolidated CLOs. These investments are carried at fair value under the irrevocable fair value option

election at initial recognition. Changes in fair value are recorded within net gains (losses) on investments in the consolidated statements of operations. Interest income on these investments is accrued using the effective interest method and separately presented from the overall change in fair value and is recognized in other revenues in the consolidated statement of operations.

The Company’s equity method investments include investments in funds, which are not consolidated, but in which the Company exerts significant influence, but not control. The Company has not elected the fair value option and accounts for such investments under the equity method. Under the equity method of accounting, the Company recognizes its share of the underlying earnings (losses) from equity method investments within net gains (losses) on investments in the consolidated statements of operations. The carrying amounts of equity method investments are recorded in investments in the consolidated balance sheets. Refer to Note 15 for details of the related party nature of such investments.

In the second quarter of 2023, our consolidated SPAC was liquidated in accordance with its charter and the investments held in a SPAC’s trust account were liquidated. Investments of consolidated entities included both investments of the Company’s consolidated SPAC, prior to its liquidation, as well as investments held by the Company’s consolidated structured alternative investment solution. The investments of the consolidated structured alternative investment solution that the Company manages are generally measured at fair value using the NAV per share practical expedient. The Company may determine based on its own due diligence and investment procedures, that NAV per share does not represent fair value. In such circumstances, the Company will estimate the fair value in good faith and in a manner that it reasonably chooses in accordance with GAAP. The Company does not categorize investments where fair value is measured using the NAV practical expedient within the fair value hierarchy.

The following table summarizes the fair value of the investments of the structured alternative investment solution that are measured using the NAV practical expedient by strategy type and ability to redeem such investments as of September 30, 2023:

Fund Type(1)

Fair Value (as of September 30, 2023)

Redemption Frequency(2)

Redemption Notice Period(2)

(dollars in thousands)

Multi-strategy

58,583

Quarterly - Annually

30 days - 90 days

Credit

250,321

Monthly - Annually(3)

30 days - 90 days

Real estate

13,612

None(4)

N/A

Total

322,516

_______________

(1)The structured alternative investment solution invests in both open-ended and close-ended funds. The investments in each fund may represent investments in a particular tranche of such fund subject to different withdrawal rights.

(2)$163.3 million of investments are subject to an initial lock-up period of three years during which time no withdrawals or redemptions are allowed. Once the lock-up period ends, the investments are able to be redeemed with the frequency noted above.

(3)30% of these investments are in closed-end funds which cannot be redeemed, as distributions will be received as the underlying assets are liquidated, which is expected to be approximately six years from inception.

(4)100% of these investments are in closed-end funds which cannot be redeemed, as distributions will be received as the underlying assets are liquidated, which is expected to be approximately seven to nine years from inception.

As of September 30, 2023, the structured alternative investment solution had unfunded commitments of $72.0 million related to the investments presented in the table above.

See Note 2 in the Company’s Annual Report for additional information regarding the investments of consolidated entities.

Fair Value Disclosures

Fair value represents the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date (i.e., an exit price). The Company and the funds it manages hold a variety of investments, certain of which are not publicly traded or that are otherwise illiquid. Significant judgement and estimation go into the assumptions that drive the fair value of these investments. The fair value of these investments may be estimated using a combination of observed transaction prices, prices from third parties (including independent pricing services and relevant broker quotes), models or other valuation methodologies based on pricing inputs that are neither directly nor indirectly market observable. Due to the inherent uncertainty of valuations of investments that are determined to be illiquid or do not have readily ascertainable fair values, the estimates of fair value may differ from the values ultimately realized, and those differences can be material.

GAAP establishes a hierarchical disclosure framework that prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is impacted by a number of factors, including the type and the specific characteristics of the financial instrument, including existence and transparency of transactions between market participants. Financial instruments with readily available actively quoted prices or for which fair value can be measured from actively-quoted prices generally will have a higher degree of market price observability and lesser degree of judgment used in measuring fair value.

Financial instruments measured at fair value are classified and disclosed into one of the following categories based on the observability of inputs used in the determination of fair values:

•Level I – Quoted prices that are available in active markets for identical financial instruments as of the reporting date. The types of financial instruments that would generally be included in this category are listed equities, U.S. government obligations and listed derivatives. The Company does not adjust the quoted price for these investments.

•Level II – Quotations received from dealers making a market for financial instruments (“broker quotes”), valuations obtained from independent third-party pricing services, the use of models or other valuation methodologies based on pricing inputs that are either directly or indirectly observable as of the reporting date. The types of financial instruments that would generally be included in this category are certain corporate bonds and loans, certain credit default swap contracts, certain bank debt securities, certain commercial real estate debt, less liquid equity securities, forward contracts and certain over the-counter (“OTC”) derivatives where the fair value is based on observable inputs. These financial instruments exhibit higher levels of liquid market observability as compared to Level III financial instruments.

•Level III – Pricing inputs that are unobservable for the financial instruments and includes situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value of financial instruments in this category may require significant management judgment or estimation. The fair value of these financial instruments may be estimated using a combination of observed transaction prices, independent pricing services, relevant broker quotes, models or other valuation methodologies based on pricing inputs that are neither directly or indirectly market observable (e.g., cash flows, implied yields, EBITDA multiples). The types of financial instruments that would generally be included in this category include CLOs, certain warrant liabilities, certain credit default swap contracts, certain bank debt securities, certain OTC derivatives, asset-backed securities, collateralized debt obligations and investments in affiliated credit funds.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument when the fair value is based on unobservable inputs.

For financial instruments for which the Company uses independent pricing services for valuation, the Company performs analytical procedures and compares independent pricing service valuations to other vendors’ pricing as applicable. The Company also performs due diligence reviews on independent pricing services on an annual basis and performs other due diligence procedures as may be deemed necessary.

Fair Value Measurements Categorized within the Fair Value Hierarchy

The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis within the fair value hierarchy for the periods presented:


	As of September 30, 2023
	Level I		Level II		Level III		NAV		Total

	(dollars in thousands)
Assets, at Fair Value
Included within cash and cash equivalents:
U.S. government obligations	$	9,913	$	—	$	—	$	—	$	9,913

Included within investments:
U.S. government obligations	$	79,408	$	—	$	—	$	—	$	79,408
CLOs(1)	$	—	$	—	$	217,543	$	—	$	217,543









Included within investments of consolidated entities:





Investments in funds	$	—	$	—	$	—	$	322,516	$	322,516


Liabilities, at Fair Value
Warrants	$	—	$	—	$	34,140	$	—	$	34,140


Liabilities of consolidated entities:

Notes payable	$	—	$	—	$	220,702	$	—	$	220,702

_______________

(1) As of September 30, 2023, investments in CLOs had contractual principal amounts of $213.0 million outstanding, which excludes the Company’s investments in subordinated tranches of the notes, as these do not have contractual principal payments.


	As of December 31, 2022
	Level I		Level II		Level III		NAV		Total

	(dollars in thousands)
Assets, at Fair Value
Included within cash and cash equivalents:
U.S. government obligations	$	19,937	$	—	$	—	$	—	$	19,937

Included within investments:
U.S. government obligations	$	24,782	$	—	$	—	$	—	$	24,782
CLOs(1)	$	—	$	—	$	207,147	$	—	$	207,147




Included within investments of consolidated entities:
U.S. government obligations	$	237,964	$	—	$	—	$	—	$	237,964




Investments in funds	—		—		—		306,590		306,590
Investments of Consolidated Entities	$	237,964	$	—	$	—	$	306,590	$	544,554

Liabilities, at Fair Value
Warrants	$	—	$	—	$	24,163	$	—	$	24,163

Liabilities of consolidated entities:
Warrants	$	596	$	—	$	—	$	—	$	596
Notes payable	$	—	$	—	$	196,106	$	—	$	196,106

_______________

(1) As of December 31, 2022, investments in CLOs had contractual principal amounts of $212.0 million outstanding, which excludes the Company’s investments in subordinated tranches of the notes, as these do not have contractual principal payments.

Reconciliation of Fair Value Measurements Categorized within Level III

Gains and losses on investments categorized within Level III, excluding those related to investments of consolidated entities and foreign currency translation adjustments, are recorded within net gains (losses) on investments in the consolidated statements of operations. Gains and losses related to foreign currency translation adjustments are recorded in the statements of comprehensive income (loss), and gains and losses related to investment of consolidated entities are recorded within net (losses) gains of consolidated entities. Amortization of premium, accretion of discount and foreign exchange gains and losses on non-U.S. dollar investments are also included within gains and losses in the tables below. Changes in fair value of warrant liabilities are included in other income (loss) in the consolidated statements of operations. In the first quarter of 2022, the warrants of the consolidated SPAC began to trade publicly, and as such, were transferred from Level III to Level I and in the second quarter of 2023, the warrants expired worthless as the SPAC was liquidated. Changes in fair value of warrant liabilities and notes payable of the consolidated entities are included in net (losses) gains of consolidated entities in the consolidated statements of operations. The Company elected to measure its investments in CLOs, U.S. government obligations and notes payable of the consolidated fund at fair value through consolidated net (loss) income in order to simplify its accounting for these instruments.

The following tables summarize the changes in the Company’s Level III financial assets and liabilities for the three months ended September 30, 2023 and 2022:


	June 30, 2023		Transfers In		Transfers Out		Purchases / Issuances		Investment Sales / Settlements		Gains / (Losses) Included in Earnings		Gains / (Losses) Included in Other Comprehensive Income		September 30, 2023
	(dollars in thousands)
Assets, at Fair Value
Included within investments
CLOs	$	208,138	$	—	$	—	$	15,687	$	(3,887)	$	2,938	$	(5,333)	$	217,543




Liabilities, at Fair Value
Warrants	$	24,423	$	—	$	—	$	—	$	—	$	(9,717)	$	—	$	34,140


Liabilities of consolidated entities:

Notes payable	$	205,290	$	—	$	—	$	—	$	—	$	(15,412)	$	—	$	220,702


	June 30, 2022		Transfers In		Transfers Out		Purchases / Issuances		Investment Sales / Settlements		Gains / (Losses) Included in Earnings		Gains / (Losses) Included in Other Comprehensive Income		September 30, 2022
	(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs	$	203,631	$	—	$	—	$	248	$	(40)	$	(4,143)	$	(10,482)	$	189,214

Investments of consolidated entities:
Bank Debt	$	40,226	$	—	$	(16,296)	$	—	$	(23,930)	$	—	$	—	$	—

Liabilities, at Fair Value
Warrants	$	22,211					$	—	$	—	$	(2,386)	$	—	$	24,597

Liabilities of consolidated entities:

Notes payable	$	201,985	$	—	$	—	$	—	$	—	$	(5,993)	$	—	$	207,978

The following tables summarize the changes in the Company’s Level III financial assets and liabilities for the nine months ended September 30, 2023 and 2022:


	December 31, 2022		Transfers In		Transfers Out		Purchases / Issuances		Investment Sales / Settlements		Gains / (Losses) Included in Earnings		Gains / (Losses) Included in Other Comprehensive Income		September 30, 2023

	(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs	$	207,147	$	—	$	—	$	16,231	$	(12,342)	$	8,525	$	(2,018)	$	217,543




Liabilities, at Fair Value
Warrants	$	24,163	$	—	$	—	$	—	$	—	$	(9,977)	$	—	$	34,140


Liabilities of consolidated entities:

Notes payable	$	196,106	$	—	$	—	$	—	$	—	$	(24,596)	$	—	$	220,702


	December 31, 2021		Transfers In			Transfers Out			Purchases / Issuances		Investment Sales / Settlements		Gains / (Losses) Included in Earnings		Gains / (Losses) Included in Other Comprehensive Income		September 30, 2022

	(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs	$	219,510	$	—		$	—		$	30,087	$	(12,413)	$	(22,931)	$	(25,039)	$	189,214

Investments of consolidated entities:
Bank Debt	$	—	$	3,603	(1)	$	(47,258)	(1)	$	98,217	$	(51,335)	$	(3,227)	$	—	$	—

Liabilities, at Fair Value
Warrants	$	65,287	$	—		$	—		$	—	$	—	$	40,690	$	—	$	24,597

Liabilities of consolidated entities:
Warrants	$	7,590	$	—		$	(3,450)	(2)	$	—	$	—	$	4,140	$	—	$	—
Notes payable	$	—	$	—		$	—		$	215,733	$	—	$	7,755	$	—	$	207,978

_______________

(1) Transfers into and out of Level III in bank debt include $2.3 million related to the consolidation (Transfers In) and $14.0 million related to the subsequent deconsolidation (Transfers Out) of a fund that the Company manages.

(2) Transfers out of Level III into Level I related to warrants of consolidated entities that became publicly traded with available quoted prices during the first quarter of 2022.

The table below summarizes the net change in unrealized gains and (losses) on the Company’s Level III financial instruments outstanding as of the reporting date:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

	(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs	$	(2,395)	$	(14,625)	$	6,507	$	(47,970)




Liabilities, at Fair Value
Warrants	$	(9,717)	$	(2,386)	$	(9,977)	$	40,690


Liabilities of consolidated entities:
Notes payable	$	(15,412)	$	(5,993)	$	(24,596)	$	7,755

Level III Valuation Methodologies

Financial instruments classified within Level III of the fair value hierarchy are generally comprised of CLOs, warrant liabilities and notes payable of consolidated entities.

Investments in CLOs are valued using independent pricing services. The Company performs procedures over the values provided by the pricing services, as discussed above.

Warrant liabilities of the Company are valued by independent pricing services using Black-Scholes option pricing model with a probability-weighted value based upon merger and no merger scenarios. The Company’s Class A share price, warrant exercise price, risk free rate, volatility, term to expiry and probability of merger are the primary inputs to the valuation. The significant unobservable quantitative input used for the fair value measurement of the warrant liabilities of the Company was volatility. The volatility of 58.65% used in the merger scenario was based on a 100-day historical volatility per the warrant contractual terms in case of a change of control and the volatility used in a no merger scenario was a term matched historical volatility of 55.96%, as of September 30, 2023.

Notes payable of consolidated entities are valued using independent pricing services. The Company measures the financial liabilities of its consolidated entity based on the fair value of the financial assets of the consolidated entity, as the Company believes the fair value of the financial assets is more observable. Refer to Note 2 in the Company’s Annual Report for additional valuation considerations of the notes payable of consolidated entities.

Financial Instruments Not Measured at Fair Value

Management estimates that the carrying value of the Company’s financial instruments not measured at fair value, including its debt obligations and repurchase agreements, approximated their fair values as of September 30, 2023. The fair value measurements for the Company’s debt obligations and repurchase agreements are categorized as Level III within the fair value hierarchy. The fair value measurements for the Company’s CLO Investments Loans (as defined in Note 7) and repurchase agreements were determined using independent pricing services. The fair value measurement for the Company’s 2020 Term Loan (as defined in Note 7) was determined using a discounted cash flow model.

Loans Sold to CLOs Managed by the Company

From time to time the Company may sell loans to CLOs managed by the Company. These loans are purchased by the Company in the open market and simultaneously sold for cash to the CLOs. The loans are accounted for as transfers of financial assets as they meet the criteria for derecognition under U.S. GAAP. No loans were sold in each of the nine months ended September 30, 2023 and 2022. The Company invests in senior secured and subordinated notes issued by certain CLOs to which it sold loans in the past. These investments represent retained interests to the Company and are in the form of a 5% vertical strip (i.e., 5% of each of the senior and subordinated tranches of notes issued by each CLO). The retained interests are reported within investments on the Company’s consolidated balance sheet. As of September 30, 2023 and December 31, 2022, the Company’s investments in these retained interests had a fair value of $71.3 million and $78.6 million, respectively.

The Company is subject to risks associated with the performance of the underlying collateral and the market yield of the assets. The Company’s risk of loss from retained interest is limited to its investments in these interests. The Company receives quarterly payments of interest and principal, as applicable, on these retained interests. For the nine months ended September 30, 2023 and 2022, the Company received $13.2 million and $2.0 million, respectively, of interest and principal payments related to the retained interests.

The Company may from time to time refinance its investment in CLOs. If a refinanced CLO investment is considered substantially different from the original CLO investment, the refinancing is accounted for as a sale and a new refinanced CLO investment is recognized at fair value that is used to determine the amount of gain or loss on derecognition that is presented within net gains (losses) on investments in the consolidated statements of operations. If the refinancing is not considered substantially different from the original CLO investment, a new effective interest rate that equates the revised cash flows to the carrying amount of the original CLO investment is calculated and applied prospectively.

The Company uses independent pricing services to value its investments in the CLOs, including the retained interests, and therefore the only key assumption is the price provided by such service. A corresponding adverse change of 10% or 20% on price would have a corresponding impact on the fair value of the Company’s investments in CLOs.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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